Category: Volume 14 Issue 2

This article critiques the cash flow tax proposed in the Australia’s Future Tax System Review (the Henry Review)(the proposed tax on financial services is covered elsewhere). The author recognises several attractions of the cash flow tax, principally the lower compliance costs associated with ‘automation’ of processes and the removal of the need to identify actual transactions. But concerns are expressed about the cash flow tax such as the risk of underreporting, the risk to Australian Double Tax Agreements by removing income tax on business and adopting a system that is not well recognised internationally.

This article compares and contrasts the Australian Henry Review with major tax reviews that took place at about the same time in the United Kingdom (the Mirrlees Review) and New Zealand (the Tax Working Group Review). It suggests that the three countries share many cultural, social, economic and political traditions and institutions, but that this shared heritage does not necessarily extend to the realms of tax reviews and the possible roads to tax reform that the countries may tread. There are some similarities in aspects of the processes of tax review that have taken place in the three countries (though rather more differences), and all three countries also share a commitment to broadly similar principles underlying the recommendations made by each of the three reviews. But the specific proposals made by each of the reviews do not share much common ground. The differences are more apparent than any similarities that may occur, an outcome (in part at least) predicated upon the very different political, economic and fiscal imperatives prevailing in each of the three countries.

The Minerals Resources Rent Tax (MRRT) is intended to tax the rents properly attributed to minerals at the time and place of their extraction (ie at the mouth of the mine). However, mining operations involve a degree of vertical integration that in some cases extends from mine to port. We examine the approach adopted in the MRRT to allocating the resulting revenues as between the taxing point and the downstream operations and show that it both lacks economic rationale and is likely to distort build/buy decisions.